Queries... money, better, return, overcome, understood

suxiaoxiao

How is the time weighted Rate of Return a better measure than the money weighted rate of return....??

I havnt understood clearly how d distortions are overcome in d time weighted approach...
Can sum1 enlighten....??

shootingstar

The Duration of Zero Coupon Bonds is approx equal to the years to maturity...??
for floating rate securities it is the fraction of the yr till nxt reset date....?

thanx...

manasib

It is probably best to first look at the definition.. 'Duration is the change in bond price for a 1% change in interest rates'..

As zero coupon bonds don't make any coupon payments till maturity, the entire amount that is received at maturity is at risk and is exposed to increasing interest rates.. So for a zero coupon bond the years to maturity is equal to the duration.

With floating rate securities the interest rate is reset at regular intervals (i.e. every 6 months). As these bonds are not zero coupon bonds, they make coupon payments every 6 months based on the floating rate.. Therefore the duration is measured as the time from the last reset to date to the next reset date i.e. a bond with $1000 par value and 10% floating rate coupon was reset on 1 January 2010. The next reset is on 1 July 2010..

Think of bonds that make coupon payments as having a smaller duration to bonds that do not make any coupon payments (zero coupon bonds). The more $$$ that a bondholder recovers in coupon leaves less of the bond price to change in interest rates and hence lower the duration.

I remember reading an email from the CFA Institute that the choices for each question in June 2010 exam have been reduced from 4 to 3. I know someone who sat the exam when there were 5 choices..

Hope this helps..

Jolyn

Thanx....!!!
When u say years to maturity....consider a 10 yr zero coupon bond...
u say for this duration is 10 yrs..
consider a normal bond...duration is 5...for change in price with change in interest rate...
still nt clear abt it... hw years 2 maturity and...change in price with change in interest rate is being compared here...

newayz...thanx again...
also jus reiteraing....JUNE 2010 has ppr with 3 OPTIONS per question..?

sgupta0827

all of the questions are going to have 3 answer choices.